Paul here, I liked your earlier economics post so much I thought it deserved a follow-up. Economics is always a balance of supply and demand. Production and consumption. Capital and Labor. Ultimately the problem with both Demand-Side Economics and Supply-Side Economics is they rely too heavily on just half of the equation. As a result, if carried too far in policy, they each have failure points.
In a healthy fluid economy, production and consumption are in balance enough that the market demands of the consumers are steadily met with production, which in turn feeds compensation and buying power of the consumers as workers.
A) In an economy where forces or policies have become too weighted to the demand-side, consumption demand outweighs investment and production. You get too many dollars chasing too little production -- result: inflation of consumer goods.
B) In an economy where policies are too heavily weighted towards investment and capital, you get too many dollars in the investment world chasing too few productive investments -- result: asset bubbles. Nasdaq 5000. The dot-com bubble of 1999-2000. The real estate bubble of 2006-2007. The commodities bubble of 2008. You can also get corporations sitting on huge cash balances in a recession without a clear idea of how to deploy it into production, because the demand out in the consumer marketplace can'tit anymore.
In case (B), you basically have an economy that has become slow to respond to monetary policy because the wealth distribution has gotten too putzed up, making demand less elastic among the broader consumer base. The Fed cuts interest rates, but it has little effect as it amounts to 'pushing on a string' -- this is a sign that supply-side economics has been pushed to its ultimate limit. It marks the end of an economic 'long cycle'. To reset the clock, demand-side forces need to be enabled to somehow set the trend.
A confounding problem is that the traditional feedbacks are no longer reliable in a global market: the US isn't a closed system, so increasing productive capacity no longer translates into more wages in the consumer base. It may mean increasing wages in China, and unless those wage-earners spend their money on American goods, it does us no good. The next best thing that they do is they buy our bonds so we can borrow the money to maintain our standard of living with low taxes in lieu of rising wages. A dubious bargain, to be sure.
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